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  • Question

    Does the term "large business" specifically refer to a FOR PROFIT corporate entity? Would Universities and Non Profit Research Organizations conducting R&D for the DOD be exempt from DFARS 215.407-5 as they should not qualify as "large business contractors" ? Note: Universities and Non Profits are required by 2 CFR 200 (subpart F) to have annual A133 Single Audits that focuses on the recipients internal controls and compliance with federal law and regulation.


    Answer

    Note that the applicability of estimating systems, per paragraph (b)(1) under DFARS 215.407-5-70 applies to ALL contractors – “DoD policy is that all contractors have acceptable estimating systems that consistently produce well-supported proposals.”.  Any contractor that we do business with has to be able to provide a proposal that we can use to negotiate fair and reasonable prices.

    However, in terms of the estimating system disclosure, maintenance, and review requirements that are mentioned in the DFARS, they are required for large businesses that meet the thresholds described under
    paragraph (b)(2), which does not necessarily even mean all large businesses are subject to the requirements discussed therein. This is further supported by the explanation of Policy under DFARS 215.407-5-70 where the Contracting Officer must make a determination regarding the use of the clause at DFARS 252.215-7002 and whether it must apply, may apply, or if it does not apply.

    So, considering the other types of businesses that you mention, although not subject to the more stringent estimating system disclosure, maintenance, and review requirements and DFARS clause, does not relieve us of the requirement to ensure that we are doing business with a responsible contractor that can provide a proposal based on an adequate estimating system and sound methodology. The audit requirements that you mention as well as the oversight of a cognizant administration office are the means by which those types of organizations are “held accountable.”
    A primary factor that can drive the application of accounting standards, audits and similar oversight is the type of contract and the value of it, although as noted the application of standards can be driven by the type of organization.  Recommend that you also review FAR Appendix  (Part 9903.201-1 and 201-2) to read about the application of accounting standards to educational organizations and FRRCs.


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